Exclusive: Verizon Wireless spectrum deal in for tough remedy

Verizon Wireless may need to agree to tough conditions to win approval for its deals to buy spectrum from cable companies and market each others' products, according to three sources knowledgeable about the negotiations.

The Justice Department and Federal Communications Commission are reviewing plans by Verizon Wireless, the biggest U.S. mobile provider, to buy spectrum from a consortium of cable providers, including Comcast (>> Comcast Corporation) and Time Warner Cable (>> Time Warner Cable Inc), for about $3.9 billion. The transactions were proposed in December.

While the Justice Department and FCC appear prepared to approve the spectrum portion of the deals with minor adjustments, antitrust regulators have sought strict limits on controversial side deals.

The additional spectrum would give Verizon Wireless a bigger edge over competitors as they struggle to meet consumer demand for videos and other data-heavy services. Verizon Wireless is owned by Verizon Communications (>> Verizon Communications Inc.) and Vodafone Group Plc (>> Vodafone Group plc).

Negotiations with the Justice Department's Antitrust Division have been bruising, focusing on plans by Verizon Wireless and Comcast, the biggest mobile carrier and the biggest cable company, respectively, to market each other's products.

There has also been concern about a plan for a joint venture to develop new technologies, such as one to allow consumers to move seamlessly between wired and wireless hookups. Critics say it could create cutting-edge products only available to the consortium.

The path that the talks are on would lead to a consent decree that would forbid the cross marketing agreement where Verizon markets its FiOS product, according to the three sources, who were not authorized to speak on the record.

Cross marketing in the rest of Verizon's footprint and the joint research and development project would be allowed but only for a limited period of time, the sources said.

Verizon has 18 million households with FiOS in California, Connecticut, Delaware, Florida, Indiana, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Texas, Virginia and Washington.

The companies would like to see negotiations wind up in August, which is possible, two sources said.

The proposed remedies are "strong measures that indicate DOJ (the Justice Department) had significant concerns about the anticompetitive potential of key features of the proposed agreement," said an antitrust expert who declined to be named to protect business relationships.

A Justice Department spokeswoman declined to comment on the current transactions under review, as did a Verizon spokesman. The FCC, which should conclude its review this month, also declined comment.

Consumer advocates had hoped that Verizon would use its FiOS service to more aggressively push into Internet and cable, and that Comcast and other companies would compete more heavily in wireless products.

The FCC, which is taking the lead in assessing the spectrum portion of the deal, is prepared to approve it with some adjustments following promises of spectrum sales, according to two sources familiar with the matter.

Last month, Verizon and Deutsche Telekom's (>> Deutsche Telekom AG) T-Mobile USA said they would swap some spectrum in a deal that paved the way for T-Mobile to drop its objection to Verizon's deals with the cable companies.

Neither agency will sign off on the transactions until both are satisfied that any problems have been resolved.

The regulatory review of Verizon's spectrum deal comes a few months after the Justice Department and FCC turned back AT&T's bid to buy rival T-Mobile USA. Regulators said a merger between the second- and fourth-largest U.S. cellphone companies would hurt competition and raise prices for consumers.

(Reporting By Diane Bartz)

By Diane Bartz

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